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Special Bulletin
A Japanese Perspective on the International Energy Landscape (167)

April 9, 2014

Possibility and Impact of Accelerated U.S. Oil Output Expansion
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn April 7, the U.S. Energy Information Administration issued its Annual Energy Outlook
2014 (AEO 2014) forecasting long-term U.S. energy supply and demand. Last December 16, theEIA published an Early Release version of AEO 2014, just focusing on an overview of key findings.
In giving the full report, the EIA interestingly began the first of its staged releases to take place fromApril 7 to 30.
Through the “staged release,” the EIA offered to provide each part focusing on a specifictopic. The full report’s release will thus be completed on April 30. The first part that came out on
April 7 focuses on long-term U.S. oil output expansion. The topic is very relevant and interesting at
a time when the future course of U.S. oil and gas production under the shale boom has become oneof the largest factors influencing the international energy situation.
Given that U.S. shale oil (light tight oil, or LTO) production expanded rapidly from lessthan 1 million barrels per day (mb/d) in 2010 to more than 3 mb/d in the second half of 2013, theEIA analysis provides the Reference case where LTO production will continue to expand before
peaking at 4.8 mb/d in 2021 and being phased down later. (The Early Release version gave thesimilar projection.) But the analysis points out that the growth potential and sustainability of U.S.
crude oil production hinge around uncertainties in key assumptions such as the geologic extent of thebase for production, and technological improvement potential and speed, and that future production
could change greatly depending on differences in the assumptions. Therefore, this analysis provides
High and Low Oil and Gas Resource cases to examine the effects of alternate assumptions on U.S.
oil production and imports and on international crude oil prices under a sensitivity analysisapproach.
In the High Oil and Gas Resource case in which estimated ultimate recovery of shale gas,
LTO and other unconventional resources will be 50% higher than in the Reference case, LTO
production will continue expanding over a long time. The production peak is estimated at 8.5 mb/dand is expected to come in 2035, far later than 2021 projected in the Reference case. The LTO
production expansion is projected to bring total U.S. oil output in 2035 up to some 13 mb/d, about 5mb/d higher than the level (8 mb/d) projected in the Reference case.
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Projected net oil imports into the United States also differ from case to case. The share ofnet imports in total U.S. liquid fuel consumption rose from 27% in 1985 to 60% in 2005 and fell to40% in 2012 due to slack oil consumption and growing LTO production in recent years. In the EIA
Reference case, the net import share is projected to fall to 25% in 2016 and then start to rise
gradually (in line with a fall in oil output) to 32% in 2040. This means that the United States may fail
to completely escape from its dependence on oil imports. In the High Oil and Gas Resource case,however, the net import share is projected to continue declining and reach about zero from around2036. The United States is thus expected to achieve self-sufficiency in oil. The substantial U.S. oil
output expansion and declining U.S. oil imports (the achievement of self-sufficiency in oil) are
expected to exert downward pressure on crude oil prices in the international market. The Brent crude
oil price in 2040 is predicted at $125 per barrel (a still high level) in 2012 dollars in the High Oil andGas Resource case, far lower than $141 per barrel in the Reference case.
As a matter of course, the trend is reversed in the Low Oil and Gas Resource case. In thiscase, U.S. oil production is projected to peak at 9.1 mb/d in 2017 and decline to less than 7 mb/d in
2040. The share of net imports in total U.S. liquid fuel consumption is predicted to turn upward after
falling to 27% in 2016 and rise back to 40% (close to the present level) in 2040. The Brent price inthis case is expected to undergo upward pressure and reach $145 per barrel in 2040. Given
uncertainties about the future course, it is not easy to accurately predict future developments. In thissense, the analysis of the High and Low Oil and Gas Resource cases depicting different pictures ofthe future may be useful.
The two cases' comparison with the Reference case indicates that the High Oil and Gas
Resource case deviates from the Reference case far more than the Low Resource case does. If actual
developments come closer to the High Resource case, we will enter a world far different from the“conventional wisdom” tells us now. Uncertainties surrounding the High Resource case may beinterpreted as greater than those for the Low Resource case. This interesting High Resource caseseems somewhat similar to the Enhanced Unconventional Resource Development (EURD) Scenario
in our IEEJ's Asia/World Energy Outlook 2013 published in October 2013. The IEEJ's U.S. oilproduction projections in the EURD scenario in the United Sates and the rest of the world are close
to the EIA projections for the High Resource case. The IEEJ scenario and the EIA High Resourcecase commonly indicate that the enhanced development of unconventional oil and gas resources
would help ease the supply-demand balance and exert downward pressure on oil and gas prices.
The degree of how long and how strongly U.S. oil and gas production expansion wouldcontinue is likely to greatly influence the international energy supply-demand balance as well as
individual economies and their industrial competiveness, as the degree can affect future developmentof energy price gaps between regions which is attracting global attention. In response to the recent
tense Ukraine situation, the expansion of U.S. oil and gas supply is also attracting attention as a2

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factor influencing global energy geopolitics. We will have to keep close watch on policy discussions
related to the U.S. energy situation.

Contact: report@tky.ieej.or.jp
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